Dairy sector study shows productivity and scale concerns

The performance of Irish dairy farms lags behind that of its main competitors, according to a new study from Teagasc.

In key productivity indicators such as milk output per cow, per acre or per labour unit, Ireland consistently ranks below competitors such as Belgium, Denmark, Italy, Holland and Britain.

The researchers behind the study said that the poor results were 'worrying' for a sector hoping to be able to compete globally when quotas were dismantled in 2015.

They also pointed out that Irish dairy farms would struggle to compete within the EU in a situation where international dairy prices fell significantly.

Teagasc's economic researcher, Fiona Thorne, said that Irish prices will tend to drop more than some of its continental competitors because of the Irish dairy industry's dependence on low-value commodities.

As a result, even though Irish input costs were lower than many of its competitors, dairy farmers here will find their overall profitability and ability to compete slip.

The research also highlighted the vulnerability of farms with fewer than 50 cows.

"The average-sized Irish dairy farm had one of the highest total economic costs per kilogramme of milk produced for the years 2008-2010, with only the average and small typical farms in Poland and northeast US experiencing higher costs," the report stated.

It concluded that "this finding could be considered as a warning signal for the future competitive performance for the average-sized Irish dairy farm in a global environment."

Par

However, the study did highlight that large Irish dairy units were on a par with some of the most competitive dairy systems in the world, including large herds in New Zealand, Australia, California and Argentina. Ms Thorne suggested that the minimum size for Irish dairy farms to survive in the future would be 75 cows on average.

Speaking at the launch of the report, Minister for Agriculture Simon Coveney said that it was a good reality check and proof "that we're not always as good as we might think we are".

"In terms of cost of production, we've a lot of work to do, and the EU has a lot of work to do," Mr Coveney said.

But he added that while we might not rate that well with NZ now, we should "judge on the same criteria in 10 years' time".

Commenting on the report, ICMSA president Jackie Cahill said that he had highlighted on many occasions the problems around building scale in Ireland in relation to land availability.

"Logic tells us that the uncertain situation around the continuation of schemes and the CAP reforms may actually slow down the amount of land becoming available and increase the cost of land that does become available," said Mr Cahill.

"We don't have a coherent land policy and next week's expiry of Stamp Duty Relief for Land Consolidation demonstrates that conclusively."

He added that the report's conclusion that Ireland was vulnerable to a sustained decrease in milk price compared to its counterparts should kick-start an official crusade against cost increases and an increased focus on the necessity of providing credit and repayment schedules that take into account the probability of severe price volatility.

The IFA's Kevin Kiersey said the report's findings confirmed that Irish dairy farmers could benefit strongly from the abolition of milk quotas to supply growing global dairy demand.

"On a cash basis, Irish dairy farmers are clearly internationally competitive, not just with our European competitors, but for our larger and more efficient farms, with some of the more prominent world producers," Mr Kiersey said.

He added that it was essential that banks came up with innovative packages to help farmers gear up for expansion, but cautioned farmers against dramatic expansion plans.

"I would recommend little steps rather than massive leaps, as the latter option has already caused major problems for some farmers," Mr Kiersey said.